Problem 11-19 Dropping or Retaining a Segment [LO11-2]

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided for seniorshome nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow:

		Total		Home Nursing		Meals On Wheels		House- keeping
Revenues	$	930,000	$	266,000	$	404,000	$	260,000
Variable expenses		461,000		112,000		197,000		152,000
Contribution margin		469,000		154,000		207,000		108,000
Fixed expenses:
Depreciation		70,100		8,900		40,400		20,800
Liability insurance		43,000		20,300		7,300		15,400
Program administrators salaries		116,000		40,800		38,700		36,500
General administrative overhead*		186,000		53,200		80,800		52,000
Total fixed expenses		415,100		123,200		167,200		124,700
Net operating income (loss)	$	53,900	$	30,800	$	39,800	$	(16,700)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, considers last years net operating income of $53,900 to be unsatisfactory; therefore, she is considering the possibility of discontinuing the housekeeping program.

The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided.

Required:

1-a. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

I am struggling with this question. Please help!!!